Norges Bank leaves policy rate unchanged, removes easing bias

As widely anticipated, the Norwegian central bank, Norges Bank, left the key policy rate unchanged at 0.50 during its policy review meeting today. The Norges Bank lifted the interest rate path considerably and removed its easing bias.

The bottom of the rate path was raised to 0.40 percent from 0.25 percent and just as important the bottom has also been pushed out to the second quarter next year, noted Nordea Bank. Anyways, the central bank indicated just a 20 percent probability for reduction of its interest rate during its December meeting and an additional 20 percent possibility during the March meeting. This is not an easing bias.

The Norges Bank in a statement mentioned that “the Executive Board’s current assessment of the outlook suggests that the key policy rate would most likely remain at today’s level in the period ahead”.

Meanwhile, the central bank stated that growth prospects for imports amongst Norway’s trading partners have softened slightly since June, and expected policy rates abroad have dropped slightly. Oil prices continue to stay at around the same level as before summer, whereas the NOK has strengthened slightly.

On the inflation front the Norges Bank stated that inflation has been surprisingly high in recent months. Meanwhile, there are signs that growth in the Norwegian economy is rebounding at a bit more rapid pace than anticipated in June. House price inflation has quickened and has been higher than projected. Low interest rates might lead to a persistently high rate of increase in house prices and rise in vulnerability of the financial system.

The Norwegian central bank stated that the economic growth is moderate, while capacity utilization is below a normal level. It expects inflation to recede further ahead as a result of low cost growth and a slightly stronger krone.